According to the ATO Uber is the same as a Taxis for GST purposes, but not for FBT purposes!

This month, the Australian Taxation Office announced after a 2 year long consultation period that while they have decided to treat ride-sharing services like Uber and Ola the same as taxis when it comes to Goods & Services Tax, they will not treat them the same for the purpose of the Fringe Benefits Tax Exemption for “taxi” travel by employees!

Is this the definition of hypocrisy!  Yes and no…

The ATO’s Consultation Process for the Taxi Travel Exemption

In September 2017 the ATO issued discussion paper TDP 2017/2 regarding the application of the FBT – Taxi Travel exemption to “ride-sharing” services.

After nearly two years of review, the ATO confirmed that it will not extend the taxi travel exemption to ride-sharing services such as Uber and Ola!

This is despite the fact they treat Uber and Ola the same as Taxis when it comes to collection of GST (eg. even when a driver is under the threshold for GST, they are forced to pay it regardless, unlike any other small business owner who is under the threshold).

The Taxi Travel Exemption

Under section 58Z of the FBT Act, any benefit arising from taxi travel by an employee is an exempt benefit if the travel is a single trip beginning or ending at the employee’s place of work.

One of the most common uses for the exemption is where an employee works late, and to avoid the additional difficulties (and risks) of attempting to catch public transport late at night, the employer pays for a taxi to take them home.

The exemption also applies where the travel is both a result of sickness or injury to the employee and the whole or a part of the journey is directly between the employee’s place of work and the employee’s place of residence or any other place necessary for the employee to go as a result of the sickness or injury (eg. a hospital).

You and I probably consider Taxis and Ubers/Olas should be the same for such an exemption, certainly it would seem the logical outcome.

However, the ATO argue that the problem is the legislation specifically defines a taxi in subsection 136(1) of the FBT Act as a motor vehicle that is ‘licenced to operate as a taxi’.

Licenced to Operate as a Taxi

The ATO has interpreted the meaning of ‘licenced to operate as a taxi’ based on the taxi licencing regime that operates throughout each state and territory in Australia.  While the licencing regime is currently being reviewed, ride-sharing service providers are currently not considered licenced taxi operators in any state or territory.

The Inconsistency

The ATO’s interpretation of the meaning of a ‘taxi’ seems somewhat inconsistent with the recent decision in Uber v FCT.

In this case the Federal Court considered the meaning of taxi for GST purposes as ‘a vehicle available for hire by the public and which transports passengers at his or her direction for the payment of a fare that will often, but not always, be calculated by reference to a ‘taximeter’.

This definition therefore was determined to encompass ride-sharing services.

The ATO’s reasoning for adopting a different meaning of taxi for FBT purposes is that the term ‘taxi’ is not defined in the GST Act, and accordingly, the Federal Court’s interpretation is necessary for GST purposes.  However, for FBT purposes, the term ‘taxi’ is defined, and therefore, a literal reading of this definition will not include ride-sharing services.

Where to from here for Small Business Owners?

First, we recommend you contact your local Member of Federal Parliament and lobby them to change the law in this regard.  We are working on our own submission as we speak.

Secondly, in the mean time, if you have paid for a number of employee’s Ubers where the purpose of the trip was not entirely for work purposes, you are likely now required to report the expense on a Fringe Benefits Tax Return (separate and in addition to your business Income Tax Returns) and pay FBT on the expense.  Unfortunately this means the expense basically will double for you and your business! Not to mention the cost of preparing the extra return!

Thirdly, you should review your expense reimbursement policies in light of the ATO’s confirmed position, as reimbursement for ride-sharing travel between work and home is now much more expensive than you probably thought and you may well need to rule it out.

The One Potential Shining Light

The one potential shining light, and potential piece of good news, is that small businesses who only incur these costs on an irregular basis may still be eligible for the “Minor Benefits Exemption”.

To qualify for this exemption, the value of the benefit provided needs to be less than $300 and it and other similar minor benefits must only be provided on an “infrequent and irregular basis”.  In most cases, such travel reimbursed by employers will be less than $300 per trip of course.  However the employer will then also need to be satisfied that the relevant employee only receives these, and other similar minor benefits, on an irregular and infrequent basis.  The kicker, there is no clear guidance on the meaning of the term!

However we would suggest less than once per quarter should be fine.  Some even argue once per month though in our view that may be starting to push the boundaries!